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Key Advantages of Patent Enforcement at the United States International Trade Commission

Dec 02, 2009

Companies seeking to enforce patents have historically pursued infringers by civil litigation before the United States District Courts. Such litigation afforded patent owners a trial by jury, the possibility of money damages and perhaps punitive damages, and an almost sure injunction in the event of a favorable judgment. Although such civil litigation continues to be the most common way to enforce U.S. patent rights, companies seeking to enforce their patents against foreign-manufactured products have increasingly chosen to pursue infringers by administrative litigation before the United States International Trade Commission (“ITC”) -- particularly in circumstances where the accused product is made in China. This article briefly describes an administrative action before the ITC under the U.S. international trade laws, and discusses why an ITC action may be a preferable enforcement choice for companies facing foreign competition.

I. Background

The United States international trade laws define patent infringement to be an unfair trade practice, and assign the ITC with responsibility to combat this unfair trade practice.1 Specifically, the trade laws declare unlawful the importation of products that infringe a U.S. patent or that have been made by a process claimed in a U.S. process patent. The ITC is charged with the responsibility of investigating and litigating allegations of such unfair trade practices, and ordering the exclusion from the United States any products found to be infringing a U.S. patent. This enforcement provision in the trade laws is colloquially known as Section 337 litigation.

Section 337 litigation before the ITC is similar in many respects to patent litigation before a District Court. In an ITC case, like a District Court case, the patent owner files a Complaint under oath with allegations of infringement, and the Respondent (defendant) is required to file a Response to the Complaint. In the ITC, an Administrative Law Judge (“ALJ”) is assigned to the case and discovery proceeds under rules similar to the Federal Rules used by the District Court. An ITC hearing is conducted by the ALJ under rules similar to the Federal Rules and a written opinion is issued on the merits of the case. If an infringement is found – deemed a “violation” of Section 337 – the ITC is charged with issuing a remedy to prevent the importation of the infringing article. ITC cases, like District Court cases, are appealable to the United States Court of Appeals for the Federal Circuit.

Proceedings under Section 337 are different from District Court litigation in several ways. First and foremost, in the event the ITC determines that there has been infringement, the ITC is directed to order the exclusion of the product from the United States. An ITC “Exclusion Order” is more than an injunction directed to a particular defendant to “go forth and infringe no more.” An ITC Exclusion Order describes the infringing product and directs the Customs and Border Protection division of the Department of Homeland Security to bar such product from entry into the United States. The Exclusion Order (described in greater detail below) is the primary remedy in an ITC case. Unlike a District Court case, no money damages are available in an ITC case.

An ITC case is also different from a District Court case in that the Complainant, in pursuing relief under the U.S. international trade laws, must show that the patent is being exploited in the United States. While this provision has historically limited the availability of relief under the statute, amendments to the statute and precedent from the last two decades make clear that the threshold for showing exploitation of the patent is quite low. Indeed, foreign companies have found that they too may qualify for relief under the statute with a showing of a minimal exploitation of a patent in the United States, such as by offering engineering support services in the United States or by licensing of the patent in the United States.2 As explained below, the overall differences between an ITC case and a District Court case are often found to balance in favor of enforcing a patent in an ITC case (or in both an ITC case and a District Court case).

II. Advantages of an ITC case.

A. Speed

The ITC is a rocket docket for patent litigation. The average time to trial is approximately 10 months and the average time to decision is approximately 16 months. This is a rather remarkable speed given the fact that ITC trials, on average, involve more parties and more accused products than the average District Court trial.

ITC procedures facilitate the quick movement of the case to trial and decision. Cases, which are called “investigations,” are commenced within 30 days after the ITC receives a Complaint. Nearly all preliminary motions activity of District Court cases – such as disputes over personal jurisdiction over the defendant and venue – are effectively resolved by the ITC’s determination to initiate the case. Service of the Complaint is accomplished by the ITC itself, via express mail, so there are no delays encountered in trying to effect service on a foreign party or its agent. The ITC also issues its own standardized protective order nearly immediately after the case starts, which again, gets the case started and allows discovery to commence immediately. The ITC rules also provide for exceptionally short “response times” to matters such as discovery requests and motions to compel discovery. These short response times can work to the advantage of a Complainant who can prepare its discovery materials well in advance of filing a Complaint.

B. Broad Remedial Relief

As noted, the ITC’s primary remedial order is the Exclusion Order. This order is often more advantageous than a District Court injunction for a number of reasons. First, an Exclusion Order bars the importation of infringing products regardless of who imports them. For example, if a foreign manufacturer’s product is found to be infringing, that product is barred from entry even if an entity who was not a party to the case attempts to import the product. Depending on the nature of a patent owner’s foreign competition, this can be a dispositive reason for enforcing a patent at the ITC. For example, where a consumer product or an electronic component is traded in foreign markets before it reaches the U.S. market, it may be critical to get an Exclusion Order directed against the infringing product rather than an order such as an injunction directed against a particular entity infringing the patent.

A second key advantage of the Exclusion Order is that it is enforced by the Customs and Border Protection of the Department of Homeland Security. Instead of enforcement by a Court in a contempt proceeding against a particular party after a product is found in U.S. commerce, U.S. government resources are directed to affirmatively stopping the product at the border. A patent owner who has been awarded such an order can work closely with Customs in order to effectively identify any such imports in advance of them occurring by, for example, providing identifying information likely to appear on electronic shipping manifests filed with Customs.

A third key advantage of the Exclusion Order is that such an Order is enforced by Customs with regard to future infringing models without the need for a follow-on infringement determination by the Court. For example, if a foreign manufacturer is found to infringe a patent but later introduces a new, allegedly non-infringing model, Customs may determine that the new model also infringes and therefore should also be excluded from entry.

A fourth key advantage of the Exclusion Order is also sometimes a dispositive reason for choosing the ITC as the forum for enforcement of a patent. By statute, ITC orders become final shortly after they are issued (with certain extremely rare exceptions pertaining to a decision by the President to set aside an order for policy reasons). The Federal Circuit can stay an ITC order, but the threshold for such a stay is extremely high due to the statutory directive indicating that the orders shall be effective immediately. In certain circumstances – for instance where a patent owner is seeking royalties – the party who is excluded cannot afford to be out of the U.S. market pending an appeal. The fact that Exclusion Orders are effective immediately and are rarely stayed can create an enormous advantage for a patentee seeking leverage in licensing negotiations.

A fifth advantage is also often a dispositive reason for seeking an ITC Exclusion Order. The ITC statute directs that the ITC “shall” issue an Exclusion Order against infringing products unless certain public interest considerations counsel against issuance of such an order. History shows that the public interest factors rarely, and only in extreme circumstances, have caused the ITC to refrain from issuing an Exclusion Order. The statutory command to the agency – the ITC “shall” exclude – is a far cry from the standard in District Court. District Courts historically issued injunctions against infringement on a routine basis. That all changed when the Supreme Court (in its case concerning eBay) directed the District Courts to weigh a variety of considerations in determining whether to issue an injunction. As such, injunctions are no longer automatic in District Court cases. In contrast, a patent owner in an ITC case enjoys the statutory provision directing the ITC to issue Exclusion Orders when the agency finds infringement.

A sixth key advantage of ITC remedial relief is the availability of a “General Exclusion Order.”3 The ITC does not merely have authority to issue an Exclusion Order against the product of a particular manufacturer found to infringe a patent, the ITC can also issue an Order against an entire industry’s present and future products in circumstances where there is widespread infringement of a patent. While such a drastic order is not issued in the typical case, the Commission will consider such an order where such an order is necessary to prevent circumvention of an ordinary Exclusion Order (directed against infringing manufacturers found to be infringing) or where there is a pattern of infringement and it is difficult to identify the source of infringing product. For example, the ITC may find it appropriate to issue a General Exclusion Order where there are numerous manufacturers of a product and low barriers to new entrants in the market such that an order directed only at certain manufacturers would not provide complete relief against infringing imported product.4

C. Process Patent Protection

Remedies are available from the ITC and District Courts for infringement of process patent claims in situations where a product made by a patented process is imported into the United States. As will be seen, the ITC statute provides a broader scope of relief in process patent cases than is available from the District Courts.

The law applied by District Courts (from Title 35 of the U.S. Code) directs the Court to find infringement if a product made by a patented product is imported into the United States, but with two key exceptions. First, if a product is made by a patented process overseas, but the product is “materially changed” prior to importation into the United States, the Court is directed to find no infringement. For example, if a foreign manufacturer uses a patented process to make an intermediate chemical, but that chemical is mixed with other chemicals (and “materially changed”), the imported finished product is to be deemed non-infringing. Second, the law applied by the District Courts directs the Court to find non-infringement where a product is made overseas by a patented process and is incorporated into another product as an insubstantial component of the finished product. These two exceptions in the law applied by the District Courts are not applicable to the ITC. As such, if a product is made overseas by a patented process and “materially changed” into another product or rendered into an “insubstantial” component of another product, the ITC is not required to find that the final, imported product is non-infringing.

Recent Commission precedent indicates that the Commission will not necessarily exclude all products made by a patented process where there is only a remote connection between the use of the patented process and the final, imported product. For example, if a patented process is used to make the steel of components incorporated into a large industrial product (e.g., a tractor), the ITC will not necessarily consider the importation of the industrial product to be an act of infringement. While it is unclear how far the ITC will extend its authority in process patent cases, it is clear that the ITC has authority to exclude a broad range of products that a District Court could not enjoin – potentially providing a U.S. process patent owner a key advantage in enforcing its patent.

D. Other Advantages of an ITC case

ITC cases focus on the allegations in the Complaint and pertinent defenses, not on counterclaims. On this point the ITC statute specifically directs the ITC not to consider counterclaims. If a counterclaim is filed, the counterclaim must be removed to a U.S. District Court. In practice, the statutory provision on removal is rarely, if ever, invoked. Parties simply do not file counterclaims at the ITC and the ITC cases are focused only on the allegations raised by the Complaint.5

ITC cases also have procedural advantages. As noted above, a Complainant who is well-prepared has considerable advantages over a Respondent given the speed of a case. The Complainant can prepare its materials and analysis well in advance of a case whereas a Respondent may have difficulties simply keeping up with the schedule of a case. Other advantages include the ITC’s nationwide subpoena power and the ITC’s service of the Complaint, both of which contribute to the quick preparation of the case for discovery and trial.

III. Parallel ITC and District Court Cases

As noted, a case at the ITC provides the prospect of speedy disposition and the receipt of broad remedial relief. The ITC does not, however, have the authority to issue money damages.

A patent owner, in some cases, may want both an ITC exclusion order and money damages.6 Nothing in the ITC statute precludes a patent owner from choosing to seek relief from both the ITC and the District Court. Indeed, the ITC statute itself states that the ITC statute is “in addition” to any other remedy available in the law.7

IV. Conclusions

The advantages of an ITC case can be numerous to a patent owner seeking enforcement against a product manufactured outside the United States. The advantages of a quick resolution and a broad exclusion remedy are the key reasons for choosing to enforce a patent in the ITC. Such advantages may be particularly significant when a dispute is a worldwide patent dispute and a patent owner has available to it the potential for a quick exclusion of its infringing competitor from access to a critical market. Patent owners should accordingly give due consideration to an action at the ITC as a means of securing full and effective enforcement of their patents.

Written by Kent R. Stevens, Esq. Mr. Stevens is a former Senior Attorney with the U.S. International Trade Commission. He is also a Past President of the ITC Trial Lawyers Association.

1 The ITC is an independent federal agency, similar to the Federal Trade Commission and the Federal Communications Commission.

2 Allegations of licensing “exploitation” do not require a showing that the patented product is actually being made by anyone, and indeed, the ITC now has under consideration that licensing exploitation may be proven by a showing of litigation expenses incurred in attempting to secure licenses from the very defendants accused of infringement.

3 The Commission’s remedial authority includes authority to issue (1) a Limited Exclusion Order, which is the ordinary Exclusion Order, limited to the infringing products of a respondent found to infringe, (2) a General Exclusion Order, described above, and (3) a Cease and Desist Order. An ITC Cease and Desist Order is akin to a District Court injunction. Cease and Desist Orders are enforced by the ITC, with heavy civil penalties for their violation. Cease and Desist Orders are typically directed against the sale of imported product that has been stockpiled in the United States prior to the issuance of an Exclusion Order.

4 Until recently, the ITC was believed to also have broad authority to also issue broad Exclusion Orders covering “downstream” products containing patented products -- regardless of whether the downstream product manufacturer was a party to the case. The Federal Circuit concluded in the recent Kyocera case that the Commission does not have such authority, which, as a practical matter has caused patent owners to simply identify the downstream parties as Respondents in cases. Several Bar Associations have proposed legislation to provide the ITC with express authority to issue broad exclusion orders convering downstream products of non-parties to a case.

5 Respondents (defendants) sometimes will file a “counter-suit” at the ITC, but this is different from a counterclaim. In a counter-suit, an ITC Respondent may allege that its opponent – the Complainant in the original suit – imports products that infringe the Respondent’s patents. This type of suit is typically filed where both parties have a portfolio of patents, both parties charge each other with infringement, and the parties’ litigation is largely a matter of settling a dispute over the royalty value of the respective patent portfolios.

6 In many circumstances – particularly where the accused product is made in China -- a patent owner may only want to pursue an ITC exclusion order, figuring that it is not worth the effort to pursue damages against a foreign entity that may not have significant assets in the United States.

7 A company seeking relief from both the ITC and a District Court should be aware, however, that if it files Complaints at both the ITC and a District Court against the same party, the Respondent/Defendant may move for a stay to prevent both cases from going forward at the same time. By statute, if the Respondent/Defendant elects to stay the District Court action, the District Court is obliged to grant the motion and stay the case until the completion of the ITC case. In any event, the relevant statutes and case law do not prevent a patent owner from seeking a full compliment of remedies from both the ITC and the District Courts.